Guy Carpenter today released its 2015 Mid-Year Report on the (re)insurance landscape. In addition to providing a brief recap of renewal activity highlighted in their release on July 9, the report assesses key industry trends, including a detailed assessment of mergers and acquisitions activity and highlights other notable themes such as cyber security risk, increased regulation and public-private partnerships.
Mergers & Acquisition Developments
New capital inflows, excess capacity and limited catastrophe losses have contributed to falling reinsurance prices and a challenging, soft market environment for specialty insurers and reinsurers. Historically there is an anti-correlation between the market’s pricing cycle and heightened M&A, driven by consolidation activity and strong valuation multiples. Recent M&A activity is partly in response to this relationship, though has been subject to a number of positive and negative disruptive factors.
“We have seen notable transactions in 2015 that clearly illustrate the expected deal flow of a soft market,” said Andy Beecroft, GC Securities‘ Head of M&A Advisory (EMEA). “However we have also seen a broader spectrum of transactions that have not been driven by consolidation synergies, but instead by the recognition of a target’s inherently attractive business model and ability to generate an acceptable return on capital over the long term.”
Impact of Alternative Capital
Alternative capital continues to flow into the reinsurance markets. The growth of this capital, coming from a number of capital sources, has been 22 percent - compounding since 2008 and accelerating to 34 percent during the period 2012 to 2014. The increased fluidity of capital likely accelerated the development of the challenging market and has been the major catalyst of consolidation activity in the reinsurance sector.
Cyber Risk: Cyber risk is one of the most pressing and public topics the industry is grappling with and is being addressed as a strategic priority in corporate boardrooms and in governments around the world. The current size of the global cyber network/privacy insurance market, from a premium perspective, is approximately USD 2 billion and is expected to grow to approximately USD 5 billion over the next five years.
Other topics explored in the report:
Regulatory & Ratings: (Re)insurers are being challenged as the regulatory environment becomes more complex and increases at multiple levels and jurisdictions. Insurers are facing new issues in their efforts to manage the regulatory landscape.
Public-Private Partnerships: The (re)insurance industry is seeing new opportunities in public-private partnerships that allow it to be socially relevant in helping close the gap between economic and insured losses. Approximately 73 percent, or USD 2.7 trillion, of natural catastrophe losses globally between 1970 and 2014 were uninsured. That gap is an impediment to the development of emerging economies.
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